Hawaiian Electric (HE): Legal Exposure, Strategic Missteps, and Why This Utility Remains a Strong Sell

Hawaiian Electric Industries (HEI) and its subsidiary, Hawaiian Electric Company (HECO), have become a cautionary tale in utility investing. Despite recent credit upgrades and a $4 billion wildfire settlement, the company’s legal exposure, strategic missteps, and liability-driven valuation make it a compelling case for contrarian risk assessment. Investors must weigh these factors against the utility’s financial improvements and industry trends.

Legal Exposure: A Pyrrhic Victory

The 2023 Maui wildfires, triggered by a downed power line, left over 100 dead and $5 billion in damages. HEI and HECO’s $1.99 billion contribution to a global settlement—approved by the Hawaii Supreme Court in February 2025—was hailed as a resolution. Yet, this payout masks deeper vulnerabilities. The settlement excludes liability admissions, but the company faces ongoing scrutiny from regulators and lawmakers. The Hawaii Public Utilities Commission (PUC) has identified “critical deficiencies” in HE’s wildfire mitigation plan, including inadequate risk modeling and equity considerations for vulnerable customers [2]. Meanwhile, state legislators have demanded executive accountability, such as bonus restrictions and rate reductions, in exchange for legislative aid [2]. These unresolved tensions suggest the settlement is a temporary fix, not a long-term solution.

Strategic Missteps: A Pattern of Negligence

HE’s pre-2023 failures are emblematic of its systemic risk. Internal documents reveal the utility acknowledged wildfire risks as early as 2022 but deferred grid modernization projects until 2024 [4]. It also avoided adopting California-style public safety power shutoffs (PSPS), despite knowing their efficacy in mitigating fire risks [5]. During the 2023 crisis, HE failed to cut power during red-flag weather warnings, a decision described as “grossly negligent” by critics [4]. Post-crisis, HE’s 2025–2027 wildfire strategy—while including AI detection and grid hardening—still lacks technical rigor and equity safeguards, according to Jensen Hughes, a consulting firm hired by the state [2]. In contrast, peer utilities in Washington and Montana benefit from liability protections for following approved mitigation plans, a framework absent in Hawaii until recent legislative changes [4].

Financials: Upgrades Mask Structural Weaknesses

HEI’s credit ratings improved in 2025, with Moody’s upgrading its corporate family rating to Ba3 and S&P to B+ [1]. These upgrades reflect reduced wildfire-related accruals and $1.1 billion in cash reserves. However, HEI’s debt-to-equity ratio of 1.64 remains above the industry average of 1.61, and its $2.3 billion in long-term debt strains liquidity [6]. While EBITDA of $546.5 million in Q2 2025 signals operational recovery, core net income fell slightly to $42 million from $44 million in the prior year [5]. Analysts project stable earnings per share through 2027, but these forecasts ignore the $479 million annual settlement payments and the risk of future wildfires [3].

Contrarian Risk Assessment: Liability-Driven Valuation

The utility’s valuation hinges on its ability to manage liabilities. HEI’s securitization framework for wildfire resilience and a $500 million liability cap (under Senate Bill 897) offer some relief [3]. Yet, these measures are untested and rely on political goodwill. The broader industry is shifting toward securitization and deferred cost recovery, but HE’s lack of proactive mitigation—compared to peers in wildfire-prone states—heightens its exposure [4]. Moreover, the PUC’s review of HE’s mitigation plan underscores regulatory skepticism, which could delay critical upgrades and inflate costs.

Why This Remains a Strong Sell

Despite credit upgrades and legislative reforms, HE’s valuation is driven by liability management rather than operational strength. The company’s strategic missteps, regulatory scrutiny, and unresolved legal risks create a high-conviction sell case. While the utility’s cash reserves and securitization plans provide short-term stability, the long-term outlook is clouded by the potential for future wildfires, equity gaps in mitigation strategies, and the absence of liability protections seen in other states. For contrarian investors, HE exemplifies the dangers of liability-driven valuation in a sector where preparedness—not just resilience—defines success.

Source:
[1] Moody's upgrades Hawaiian Electric Industries' credit ratings, positive outlook [https://www.investing.com/news/stock-market-news/moodys-upgrades-hawaiian-electric-industries-credit-ratings-positive-outlook-93CH-4070436]
[2] Expert report finds 'critical deficiencies' in HECO's wildfire safety strategy [https://www.hawaiipublicradio.org/local-news/2025-08-20/expert-report-finds-critical-deficiencies-in-hecos-wildfire-safety-strategy]
[3] HEI's Q2 Earnings: Strategic Asset Sales and Wildfire Reforms Position Utility for Long-Term Resilience and Growth [https://www.ainvest.com/news/hei-q2-earnings-strategic-asset-sales-wildfire-reforms-position-utility-long-term-resilience-growth-2508/]
[4] New wildfire liability, mitigation laws in effect across Western US [https://www.spglobal.com/market-intelligence/en/news-insights/research/2025/08/new-wildfire-liability-mitigation-laws-in-effect-across-western-us]
[5] Hawaii utility faces scrutiny for not cutting power to reduce ... [https://www.washingtonpost.com/climate-environment/2023-08-12/maui-fire-electric-utility/]
[6] Hawaiian Electric Industries (HE) Statistics & Valuation [https://stockanalysis.com/stocks/he/statistics/]